Democrats vs. GOP: charting presidents' stamp on the economy

By
DAVID R. FRANCIS /
March 21, 1988

IF the American people elect George Bush president in November, the nation will experience less inflation, but possibly a recession in 1989. Should the electorate choose Michael Dukakis as president, both economic growth and inflation should increase.

That's the forecast of a paper by Alberto Alesina, an economics professor at Carnegie-Mellon University.

The Italian-born economist is not being partisan. In his paper, he uses a mathematical model based on ``game theory'' to look at economic history through the various postwar administrations of Republican and Democratic presidents. (Game theory is a formal way of treating situations in which different people interact strategically. Corporate executives and military strategists often use it as an aid to dealing with business or military competition.)

Perhaps not too surprisingly, Alesina reports that Democratic administrations have been relatively more expansionary than Republican administrations. This tends to be the case in both monetary and fiscal policy. Republican administrations are associated with tighter monetary policy. Democratic administrations have had larger cyclically adjusted federal budget deficits (at least until the Reagan administration came along with its largest-ever deficits).

In the nine completed administrations of the postwar period, the rate of annual growth in real gross national product, that is, the output of goods and services, has been higher in the first half of Democratic administrations (average 4.8 percent) than in the second half (average 4.1 percent). In Republican administrations, GNP growth has been slower in the first half (1 percent), compared with the second half (3.7 percent). Indeed, a recession has started several months after the election of every Republican administration (except for the second Reagan term).

This is not because Republican administrations like recessions, but because they are fighting inflation, says Alesina.

(The two recessions that do not fit into this pattern occurred in the last year of the second Eisenhower administration and the last year of the Carter administration.)

Unemployment also tends to be higher in the first half of a Republican administration than in a Democratic administration.

But the rate of growth in the second half of either Republican or Democratic administrations has been about the same. That may be because the economy is either recovering from a recession or slowing down after a boom. Also, perhaps, administrations facing an election attempt to have the economy moving along nicely.

Alesina also confirms work showing there is a political budget cycle. Governments, either Republican or Democratic, increase personal transfers (such as social security, unemployment insurance payments) before an election. This pattern did not hold true for the Eisenhower administrations.

Another part of Alesina's paper hints that in nations with relatively independent central banks, such as Switzerland, West Germany, Japan, and the United States, inflation runs lower than in nations with central banks that are not independent of their governments (Italy, Spain, New Zealand, and Britain). The implication is that governments instruct central banks to print more money, especially at election time, when they are free to do so.

At a conference of the National Bureau of Economic Research March 11, where Alesina presented his paper, several economists recalled both individual incidents where partisan thinking influenced government economic action and instances where it did not.

A Harvard University political scientist, Kenneth Shepsle, noted that personnel changes in important congressional committees or key administration slots can change economic policies. Martin Feldstein, former chairman of President Reagan's Council of Economic Advisers, pointed out that powerful individuals can change policy - citing former Federal Reserve Board chairman Paul Volcker as an example. Others noted that wars and ``shocks,'' such as the quadrupling of oil prices in 1974, influence the economic cycle, not just politics.

Professor Alesina admits all those points. But he still maintains that his model has something to say about the impact of differing Democratic and Republican policies on the nation's economy.